By Max Bernhard
Fiat Chrysler Automobiles appeared to get the better deal in its merger agreement with Peugeot, analysts said Thursday, with the Italian-American car maker's shares soaring while the French company's plunged.
"It's not hard to understand this reaction when you consider the job done by Peugeot management over the last five years, while Fiat Chrysler management have overseen a tired product line and little in the way of innovation, in response to the challenges that are facing the sector as a whole, which include, but aren't confined to, electric and driverless cars," CMC's Michael Hewson said in a note.
Fiat Chrysler and Peugeot shareholders will each initially own 50% of the new company, with John Elkann, Fiat Chrysler's chairman, as chairman and Peugeot's Chief Executive Carlos Tavares as CEO. Fiat Chrysler will pay a special dividend of 5.5 billion euros ($6.1 billion) and distribute its unit Comau to shareholders, while Peugeot will distribute its 46%-stake in auto parts maker Faurecia to its own shareholders.
Citi analyst Raghav Gupta-Chaudhary said the deal appears to favor existing Fiat Chrysler shareholders who benefit from the cash distribution, while Peugeot's shareholders "are being asked to remain patient."
At 1126 GMT Fiat Chrysler shares were up 8.6%, while Peugeot was down 14%.
The impact of the deal extends beyond the car makers, with several suppliers trading lower following the news, which would create one of the world's largest auto makers by volume with a market value of $48.4 billion. Faurecia was down 2.9% and Valeo traded 2.4% lower. German suppliers Schaeffler, Leoni AG and Continental AG were down 5.1%, 3.2% and 2.1%, respectively.
"Part of the motivation for a PSA-FCA deal are procurement savings," said Kai Mueller at Bank of America Merrill Lynch.
The deal is bad news for suppliers who have already been struggling with pressure for discounts from car makers amid a global slowdown in demand. Consolidation in the sector means car manufacturers could ask for higher discounts based on higher volumes.
Write to Max Bernhard at email@example.com; @mxbernhard